Why Walmart's Latest Pay Cuts Are Short-Sighted

Walmart (WMT) is willing to try anything to massage the balance sheet in its favor as it copes with six straight quarters of declining comps at U.S. stores. Yet between remodeling stores, re-thinking its apparel strategy and slashing prices, Bentonville's behemoth continues to struggle under the weight of its operating costs. So it's no wonder the latest target is its single largest expense: employees. Walmart will discontinue its pay policy of $1 extra an hour for working Sundays, beginning in 2011.

It's an unfortunate, but necessary, move for the largest private employer in the country with 1.4 million currently on the books. Even though it only applies to workers hired after January 1, 2011, Walmart's new policy is certain to create more problems for the retail giant in light of its previous ham-handed labor policies.

The klieg lights are currently glaring on Walmart's massive class-action lawsuit -- now in the hands of the U.S. Supreme Court -- in which nearly a million women workers claimed that they were paid less and promoted less often.

Walmart tried to fight back saying that each store was an independent business (therefore not employing enough workers to warrant a class-action suit) and that the suit was too large to defend. No such luck. The Supreme Court will hear arguments next spring.

In October, despite nearly 40 years of offering profit-sharing payouts to workers, Walmart cut the program in favor of offering an up to 6 percent match on funds workers' 401(k) retirement accounts. It's a boost to the bottom line in the short term, not to mention that under the new plan Walmart only has to pay out to those who opt in -- provided they earn enough to stash some away.

And back in June -- after six years of tussling with local officials to open a store in Chicago -- the United Food and Commercial Workers accepted Walmart's offer of just $.50 an hour above minimum wage for starting pay. After Chicago aldermen voted to rezone one suburban lot for a new Walmart store, execs at Walmart denied there was a deal.

This latest strategy may well achieve a better balance sheet, but the long-term cost to Walmart's name and reputation could be substantial. Walmart may have captured some extra customers during the darkest, penny-pinching days of the recession. But now that consumers are spending more -- revenue in stores open at least a year rose 3.6 percent in November and online sales were up 12 percent -- Walmart stands to lose those slim gains as well as their previously devoted customers.

Image via Flickr user Elizabeth Washburn CC 2.0


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